March 7, 2012; Market Volatility: 2011/2012 the Same

Kevin: David, over the last few weeks you have been sending news flashes out and I think it mainly pertains to the volatility and the craziness we are seeing in the market.

David: A couple of things, Kevin. First of all, of course, we are very interested in the precious metals market. Going back to December, we had sent out a special news flash from McAlvany Financial studios, looking at the price moves in gold down to about $1532 an ounce, and we got to a point where we knew that the gold market would turn around and go to the upside. So we had let people know about that and sent out a two-minute news flash on that point. It has moved higher to close to $1800, and now again is in this pullback phase.

We have some technical comments to focus on today, as well, as it pertains to the gold market. In the interim, from December until now, we sent out a second newsflash relating to the S&P 500. Some of our listeners are very interested in equities and the equities markets. Some are not so interested, so take this as you will, with a grain of salt. What we saw in the S&P 500 was a rising wedge formation out of which we thought the price would begin to fall, and it needed to decisively, and aggressively, break above 1370, in that level. What we have seen since then is an actual flirting with that level for a few days, and now a decisive break below, now in the 1340s, so we have a defined downtrend, with $1250 being a next stopping point, or destination.

Kevin: I’ll tell you, David, these news flashes have been very helpful, not because you are always going to make the exact correct call, but we have an entire staff of people here, including you, who are doing analysis that perhaps the listener does not have access to from just the mainline media. For them to get those flash updates, I know most of the listeners are already getting them, but I know that there are people who are probably listening right now, saying, I would have liked to have seen that at the time, we need to get their email address. Wouldn’t you say that would probably be the best way to get them on list, Dave?

David: Absolutely. I think if there is any way for us to keep in touch with folks on an instantaneous basis, on these news breaking events, we have some way of being in touch with you. We are looking at very volatile markets. We look at huge advantages to being in the gold and silver market over the next several years, and, ultimately, there being huge advantages of moving to, and diversifying into other asset classes, too. Really, the only way we can communicate on a timely basis, rather than taking weeks for mail to get to you via snail mail, would be by having that immediate contact with you via your best email address.

What we try to do, Kevin, is combine, as we do on the Weekly Commentary, and certainly these news flashes, too, a mixture of fundamental analysis with technical analysis. Let me give you an idea of what we talked about today in the office. I think one of the most significant things that we have seen happen this week, in the equity, bond, commodity, and foreign currency markets, is something that has happened with the U.S. dollar.

This is important, because you have to look at both the technical side and the fundamental side to see what the real story is. From the fundamental side, we see extreme deterioration in the dollar. If you look at current Treasury flows and the interest that foreigners have had in the U.S. Treasury market, of course, that impacts the dollar negatively or positively depending on whether or not people are buying or selling.

Scroll back, if you will, to June of last year, and what you will see is a reduction in exposure, specifically by the Chinese treasury. They have dropped about 12% of their holdings. It was north of 1.3 trillion and now it is at about 1.15. They have dropped about 12% since June with about 100 billion dollars in liquidations between November and December. That is on the fundamentals side.

Toggle over, if you will, to the technical side of the U.S. dollar market and the price of the U.S. dollar has just broken above the 50-day moving average. What does that indicate to us? Certainly traders across the world are saying, “What does this mean? If the dollar is moving above a considerable moving average, does that mean we have a new up-trend in the dollar?”

For us, we would say, ultimately, no we do not. But in the short term, we could still see prices rise, on a very ephemeral basis, not on the basis of fundamental strength, not on the basis of the U.S. getting its house in order, but it can still move higher. That is one of the reasons, Kevin, why we are seeing massive volatility in the gold and silver markets today, and this week, because people are looking and saying, “Okay, if the dollar is moving higher, does this mean that gold and silver are moving lower?” That is the question that people are asking in the market. What they do not realize is how close we already are to a bottom in both gold and silver.

Kevin: And David, wouldn’t you say that the downside on gold and silver is just very marginal compared to the upside? If you were to make a call right now, and I am going to put you in a corner here and say, give us some numbers, what is the downside on gold and silver, what is the upside, and does it pay to continue to hold even the shorter-term positions?

David: You have to know that you look at gold and silver differently than you do some other assets. I am sure that some of our listeners look at it and say, “I bought gold yesterday, I want to sell it tomorrow at a profit, and that is their motive – growth only. For most of our clients, it is actually quite different than that. They own gold and silver as an insurance policy, and price is what is important. I think that is worth saying, as a caveat, because of the internal, or the intrinsic nature, if you will, of the metals, as a wealth preserver, as something that is counter cyclical, as we talked about even last week, looking at some of the characteristics that are driving gold today.

In a low negative real rate of return environment, gold and silver tend to do well. We can rehash everything that we talked about last week, but I’ll just refer you back to last week’s comments. The point is, and to your question, Kevin, yes, we do see growth potential in the short term, and I would say, let’s talk about gold first, and then silver. I would say the downside is roughly 5% from here, and that assumes that we don’t turn around and race for the upside from here. We have gotten to a critical support level this week. If it does not hold, the worst case scenario is roughly 5% underneath these levels.

Am I concerned? Absolutely not. Am I inspired? Actually, I am very excited about what is happening in the metals market. It pays to have liquidity, which is why we have emphasized liquidity in the investment triangle, the perspective triangle, because it is in weeks like this that you get to pick the bottom, if you will, within the market. Again, if it is not this week, it is next week, and it is 5% lower.

Here is the compelling thing. If you say 5% is your downside, but you only have 5%, that is not a very great case to make for someone who is growth-oriented. I would suggest that there is 5% downside and roughly 30% growth potential in the short term. Now, you have to stretch it out on a much longer-term basis, but I think from these levels, we are looking at maximum upside of about 300% in gold. So 30% in the short run, 300% as time marches on, and as that long-term old trend plays itself out toward the final phase.

Kevin: David, what you are talking about here is a 6-to-1 advantage on the gain side versus the downside. It is definitely an entry point for gold. What about silver?

David: Kevin, it is real difficult to be ambivalent here, but to me, it is as clear as a beautiful sunshiny day – with 5% downside, 30% upside, you know where you want to be positioning liquid assets. On the silver side, we have both greater downside and greater upside. There is no technical support here. I think we are merely looking at a relationship to gold, and when gold has experienced its maximum pressure and maximum selling, then silver will also begin to percolate up a bit in price. From current levels of 32 to 34, I think we have downside to perhaps 29-30. Let’s say we have 9% downside from here, $2.75 from current levels.

Kevin, if it is 9% downside, we are looking at a very short-term time perspective of 50% growth. And that is just getting you basically back to the old highs. This is not some pie in the sky number-grabbing or guesswork. I think there is strength in these markets, and weakness in foreign currency and U.S. dollar markets which will take gold and silver 30-50% higher in the next 12 months, not the end of this year, but certainly in the next 12 months.

By the time we get to the end of the first quarter next year, it would not surprise me at all for gold to be 30% higher, silver to be 50% higher, again, with very miniscule downside from here. From a long-term perspective, 18 months and beyond, that is when you see silver really outperform, because, yes, gold has 300% ahead of it as a maximum number. I think silver has somewhere between 550-600% maximum upside from these levels.

We are always going to have more volatility with silver. This is one of the reasons why we encourage clients to look at a balanced perspective, focused on asset preservation first. Don’t be wooed, if you will, by the potential of greater gains, because with that comes greater risk, and we want our clients to be investing in a way that they are comfortable, from one day to the next, from one week to the next, from one year to the next, knowing that they are going to finish this race strong, and the reason they own precious metals in the first place, in a diversified portfolio, to represent an offset to losses elsewhere, whether that is in the equities market, or in the dollar market, or in savings.

Kevin: That’s a great point to make, David. We go back to what you talked about last week, and you have covered in other programs, and that is, the equity relationship in the buying power of gold and silver, be it real estate equity, or be it equities in the form of stocks. The more you hold gold right now in this period of time, it really doesn’t matter, does it, how much it goes up in paper dollars, because the paper dollar is going down? What we are really trying to accomplish here is how much more buying power do you have when you want to go out and buy a house, or when you want to go out and buy more stock? Would you cover that relationship just briefly again, David?

David: Yes, Kevin, you are exactly right. That relative value is so much more important than any nominal increase in the price of gold and silver. I will relate a story to you. The other morning I was watching a financial times interview and they brought on a Ph.D. economist from Standard Chartered. This was his section on gold, and he showed a chart of gold going back to 1971. He said, “Now this is probably very obvious to all of you.” He was being very, very pedantic. He said, “This is very obvious. If you look at this chart of gold, you will understand why we don’t want gold as a part of any money system. Look at the volatility.”

I was thinking to myself this guy is a P.h.D. economist and he does not realize that actually gold is simply reflecting volatility – either the strength of the dollar or weakness of the dollar – it has nothing to do with gold being volatile. It has everything to do with the underlying currency and the fundamentals of the U.S. economy. You see, this is the major point, and you hit the nail on the head, Kevin, because whatever happens to the nominal value of gold or silver, it is fine to pat yourself on the back for having all these great returns, but it is only commentary on the death of the currency, and a sad, sad, story about the demise of an economy that once was a great leader in the world scene, and is taking on a more and more diminished role as time goes by. That’s what we are seeing, Kevin. That is why this relative relationship, whether it is to equities, wherein the purchasing power in equities increases – that’s the Dow-gold ratio we so often talk about.

Kevin: I know a lot of people do own stock, and they are owning gold right now to own more stock down the road, but there are a lot of people listening right now who just want to know how much more house does it buy? You have pointed out that just 5-6 years ago a little over 400 ounces of gold would buy a house, and now, you can buy 4½ houses for that same 400 ounces of gold. And we are looking forward to time when it would buy even much more than that.

David: With both of those variables factoring in – the depressed values of homes being one, and the increased value of gold the other.

Kevin: David, I remember Sir John Templeton saying, before he passed away, at the peak of the real estate market, “When real estate hits 1/10th of what it is worth right now, it is a buy.” He wasn’t talking about in dollars, he was talking about in real buying power, and what you just now expressed means that we are halfway there, from buying one house, to being able to buy 4½ houses for the same amount of gold. If we were talking 9 or 10 houses, that is what John Templeton was talking about years ago.

David: Kevin, I met with John Templeton down in the Bahamas back in 2004. I had no idea what he was talking about. I had no imagination for real estate values in the United States being worth 1/10th their current value, or losing 90% of their current value. But actually, in relative terms, not nominal terms, we are halfway there, and actually, we will arrive there pretty quickly over the next 24-36 months.

Kevin: Going back to the currencies, David, you said short-term may be showing a little bit of a rise, but of course, that is relative to other currencies, which are falling. The long-term relation to the dollar, as far as buying other things, is really going down. You were talking about China divesting, the flows coming back out of the dollar in Chinese reserves.

David: This is something that several weeks ago you and I talked about in depth, in which it is actually not so much the TIC flows that we are concerned about. That is one of the fundamental variables that we do look at, but more important over the next 24-36 months is the transaction flows and the trade settlement, the invoiced settlement, outside or around the U.S. dollar. Yes, in fact, we do have Treasury flows where there is a net liquidation in the months from November to December, of 100 billion dollars in Chinese liquidation of U.S. Treasuries. That is worthy of note, but what is of greater importance is how we are losing our significance.

Kevin, it is like this: Let’s assume that we once had the lead role in the play. Now, we are simply an extra in the script. We are just standing around doing nothing. We used to have the lead role, and now we are just an extra.

Kevin: David, one of the things that has been fueling the economy worldwide, even as the rest of the west has continued to contract, was this looking toward China. You and your dad talk about it on a consistent basis. Where China goes, right now, in a way, is where the world goes, and we are starting to see a slowing, or a contraction, in China. Can you comment on that?

David: Yes, because it is really a fueling of positive sentiment. It is a fueling of hope. There really is no ability for the Chinese to be governing, directing, supporting, making up for the absence of Western Europe and the U.S. They have not converted to a consumption-oriented economy. They would like to. They are taking and making great strides toward that end, but, in the interim, no, they are not holding the world together. In fact, they are seeing an increased rate of decay, if you will, a 7½% growth rate for GDP, which is the lowest they have seen since 2004, and expected inflation was 3.8 to 4.1%, and actually, the natural number was 4½%.

To give credit where credit is due, the People’s Bank of China has masterfully taken the official inflation rate – I say official, because just like our official rate, there is some doctoring to the number – and moved it from 6½% down to 4½%, basically a 30% reduction. If you look at some of the input into their inflation calculation, Kevin, particularly with food inflation, which was accounting for about 15%, they have been able to toggle that down to about 10.

For us, that actually is more of a real world reflection of inflation in China. It was 15, now it is 10 – a vast improvement, a one-third improvement, or about a 30% reduction since June of last year. They are now in a much better position to handle a slowdown than Western Europe and the U.S. They have increased interest rates. They have some monetary policy measures that they could take advantage of that we cannot, because we already have zero interest rates in place, as the ECB and Europe does, as well.

Actually, Kevin, if you are looking for anyone who is stuck in a liquidity trap, it is the West. It is the West that is stuck in a liquidity trap, and the east still has several options if, in fact, they move into a significant slowdown. A 7½% growth rate is low for them, Kevin, but here is what the best analysts I read out of Asia would say. You can expect to see that growth rate decline to about 3% per year over the next 24-36 months.

They are still growing, they are just growing at a slower, and slower, and slower pace. Again, is China going to lead us out of this? I think it is worth looking at the role that China plays in the future, the role that their currency plays in the future, and being very aware of the changing landscape and the role of both international finance and the international monetary system, because they will play a role. But I would not overplay the significance at this particular point in time.

Kevin, this is one of the things that we are going to talk about in this year’s DVD.

Kevin: David, just as a reminder to the new listener, we do have a DVD that comes out every year. You are very careful about where you film the DVD, where you talk about the DVD. We talked about Switzerland a few years ago, New York, Washington, as that came into play, but we really have not seen a DVD that specifically focuses on Asia. You have talked this year about cutting the DVD into three parts, first talking about Europe and the West, and then talking about Asia, which is important for Westerners to understand the dynamic there. And I think part of this is really just to make a prediction for the next few years.

David: I think as we look at Europe and the West, it is important to see that the dynamics that are there both look back and look forward, are that we have come to the close of some significant chapters, and we are entering in to some very important new chapters, particularly in the U.S., and I think 2012, 2013, 2014, are going to be some of the toughest years that any of us have ever experienced.

On the other hand, Europe has just bought three years’ worth of time through their LPRO scheme, in which the ECB is refinancing over 1.3 trillion in existing debt, and essentially taking the pressure off of the European financial institutions and banks for that period of time. The critical thing is, it is only for that period of time. You are going to hear an echo, and it is going to be a very scary echo, by the time we get to 2015, as you see almost a cycling back around, or a recycling of pain, in the European landscape.

As you said, Kevin, we are going to talk about Europe and the West in the first part of this years’ DVD. We are going to talk about China and the East in the second part of the DVD. And the third part is going to be, really, a synthesis, what we anticipate globally, and for investors, and the critical decisions that have to be made in this 2013-2015 timeframe. We are going to deliver it in a different way, though, this year, because too much is happening too quickly to wait until mid year or end of year to release a one-hour film. We are going to release it in three different stretches, a 15-20 minute clip sometime at the end of April, a 15-20 minute clip sometime in the fall, and then a 15-20 minute clip bringing things together and wrapping it up as we get to the end of the year.

The only way we can deliver that in a timely fashion is to have a digital communication, an email, and we will send that to any of your friends and family members who want to receive that, but it is going to be the end of the year, or beginning of next year, before the physical copy is actually available. It takes us four weeks to get it copied. It takes us three weeks for it to go in the mail and be processed through the mail house. All of these things represent time-critical delays which I no longer tolerate, because I think the timeliness of the content and the need for people to make strategic decisions right now, in anticipation of crisis, both here in the U.S., and globally, is imperative.

Kevin: David, anyone who is listening to this Weekly Commentary, which is free, who has subscribed on our website, mcalvany.com, is already going to get these clips, but for the person who is not listening to this commentary via subscription, the free weekly update that we give, they need to go to the mcalvany.com website and sign up and just as soon as we have that email address on the sign-up, we will not only send the Weekly Commentary, but they will also receive those video clips you are talking about, the one that is coming out in April, the one that is coming out probably in September, and then at the end of the year.

David: Kevin, there are so many things that we still need to talk about today. There is this issue of oil and gas, which has continued to rise. And fortunately, we see the price pulling back this week, but now the Senate is investigating whether or not there has been price-fixing. I think that is only so much hogwash, but that is the kind of thing that comes from these men and women who really have been disconnected from the real world for years, if not decades – professional politicians.

Kevin: Well, we are definitely not disconnected. Every time gas goes up just a small amount, you can feel the pinch. The average middle class person who is driving to work, paying their taxes, when gas goes up, it has an impact.

David: I can tell you the incumbent party today is very worried about a continued increase, and they will do anything to get the price down, because from an economic perspective, a one-penny increase, sustained over the year, equals a billion dollars taken out of consumer spending on other goods and services. That one penny is equal to a billion dollars of consumer spending and other goods and services which would have occurred.

Obviously a one-dollar increase, as you spend from $3-4 per gallon at the gas pump, is 100 billion dollars a year, almost a tax, if you will, on the economy, and in this stage of nascent recovery, which is, frankly, not a recovery in my mind, but at least that is the way our leadership views it, it actually destroys that – completely destroys it.

Kevin: It is amazing to me, though, Dave, that they blame the speculator for gas prices going up. With all the other things that factor into it, they seem to always point a finger at the speculator.

David: They are not pinning the tail on the right donkey. In this case, the guys back in Washington are forgetting how close they are to the Fed and the Fed operations. In an attempt to revive the economy, we have had cheap money thrown at the U.S. system, cheap money thrown at the European system, cheap money thrown at the Japanese system, and, lo and behold, we are seeing prices rise. It is axiomatic. Liquidity from the Fed, the ECB, the Bank of England, the Bank of Japan – it is raising the probability of global inflation, and it is also raising the same specter of social trends we witnessed back in 2008, what we saw echoed in 2011 with the Arab spring, that sense of frustration over the rising cost of life’s necessities.

Kevin, it is ironic to me that Bernie Sanders says that – this is sort of my quote of the week, if you will – if the St. Louis Federal Reserve, a conservative institution, is saying speculation is contributing significantly to the high price of oil and gas at the pump, then I think that is clearly what the case is. That is what we are talking about. He and 67 other congressmen are pinning the tail on speculators, failing to see that central bankers the world over are creating a future inflation, and we are beginning to see it bubble up in the price of oil and natural gas.

Kevin: David, you were talking about Chinese inflation, but the Chinese, I think, even as much as they doctor the numbers, are probably a little bit more honest and decent with their inflation rating than we are. We take energy and food out any time it starts to become uncomfortable. And they leave the food component in. So, yes, their measure of inflation, although it is doctored, is a truer reflection. Actually, many of the central banks around the world have been doing a reasonably good job trying to burst the bubble in housing, to use that analogy. The reserve requirements at banks are north of 21%. They just lowered them to 20.5%. The banks here in the U.S. would not know how to deal with those kinds of reserve requirements. They would be scratching their heads.

Kevin, inflation simply does not exist for the academicians; it does for the average guy and gal paying bills and living their lives every day, and this is what politicians are becoming very concerned about.

Kevin: Back to the question of speculators. Are they to blame? Speculators seem to be painted with a black brush, as people who are out there just trying to take your money away. Are the speculators to blame on energy prices right now?

David: Just take a minute and substitute the word investor, instead of speculator, and instead of this nefarious personality bent on wrecking the world, with only themselves to benefit, what you have is an individual, an investor not unlike you or me, who is trying to make heads or tails of the direction the world is going, and the direction that prices are going, up or down. And yes, there is an element of speculation as you place your bet, put your money on the table, and say, “I think the price of this asset, or that asset, is going up or down.”

This is the issue, Kevin. Speculators are investors that think the price of an asset is going higher in the future, or lower, and they bet accordingly.

Kevin: I think it is important to remember, David, that there are two sides to every transaction. When somebody goes out and buys something for a little bit more than it was yesterday, there is somebody who was selling it to them for a little more than it was yesterday, and the vice-versa. There are two parties in every transaction. You do not just have these nefarious speculators, which all they do is just buy, and nobody is selling.

David: Yes, and it only takes one more buyer than seller to move prices up, because that creates a competition in price in which you have two interested parties wanting the same thing, and, lo and behold, the price goes up, with only one seller. It only takes one more seller than buyer to push prices down. Markets are made with marginal swings in volume, and only rarely are they made by a mass of people betting uni-directionally, or in one direction. Those are the circumstances that a seasoned investor looks for, and at the right time, just simply steps away from.

Kevin, I think as you look at the oil prices, the gold prices, the equity price, you try to blame speculators for the direction of the market, but again, if you are looking at technical data, if you are looking at fundamental data, these things factor into a judgment which is made and a “bet that is made” on the basis of those realities.

Kevin: I will tell you, David, I have seen, a number of times, there is that scary period of time, and we have seen it with stocks before, I remember 1987 and several times through the 1990s, then again about three years ago, when there were no buyers for stocks. When there are no buyers, when there is no one on that side of the transaction, you can see a market sink without a transaction, can’t you?

David: Kevin, this is exactly what we have this week. If you look at the New York stock exchange volume last Friday, it was the lowest we have seen it all year, the lowest volume statistics on the NYSE of the entire year, and, lo and behold, we now have this week, which is unfolding to be a nasty mess. This, to us, is indicative of what we have been talking about, the technical pattern of a rising wedge where the price keeps on moving up, but on thinner and thinner volume.

Ultimately, you have to have a reason for people to come in and buy the snot out of it, or it will fall of its own accord. If there are no buyers showing up, the price naturally sinks, even without liquidations. Where you begin to see a real snowball effect, is when people pile on and begin to sell into that weakness.

Kevin: David, there is the ability to short the market and make money on the short side. It is a maneuver that you have used many, many times. But there used to be a rule that kept those shorts from overwhelming the stock market, and I don’t think that rule is in place anymore, is it?

David: Kevin, these are the fundamental things that have been left behind that are so critical to a normal and healthy equity market or investment market. They put the up-tick rule in place in 1929 and it seemed to serve the markets well until 2007, and I can guarantee you, somebody lobbied for it. I can guarantee you that since that point, 2007 forward, it is the high-frequency traders, it is the black box model traders, the folks who were trading algorithms. They invest for nanoseconds or sub-nanoseconds, not even days, weeks or months, let alone years, as the traditional investor might.

That came into place, in large part, because of this removal of the up-tick rule. We have radical volatility in the equity markets, in part because the SEC has determined that old rules are no longer necessary. The importance for the up-tick rule is this, Kevin. For every move down that a stock makes, it has to come up one tick before it can go down again. Again, instead of imagining two steps forward, one step back, this is two steps back, one step forward, and it moderates any decline.

Look back at 2011 and these radical 500, 600, 700-point down days, it would not have been possible in the era of the up-tick rule. What seems like a very minor change in the rules, Kevin, is actually something that adds a tremendous amount of volatility to the downside, and someone will be blamed. It will be a hedge fund, it will be a high-frequency trader, it will be someone who is drug out in the streets and tarred and feathered, but in actuality, it is the SEC and Congress who have determined that it is no longer necessary to have something like the up-tick rule in place.

Again, it had been in place since 1929. It certainly has a place today, Kevin, and I think, actually, this year we are likely to see the same kind of downswings – 400, 500, 600, 700-point downswings – before the SEC gains control again of their mental process and says, “Oh, yeah, I guess that was a good idea after all.”

Kevin: I will tell you, David, they seem to remove tools that help, and they put in tools that do not help: Dodd-Frank and things like that, which are completely unintelligible. But for the person who is listening to the program this week and wanting to just hear the summary of what your thoughts are for the week; it has been extremely volatile, there is not a lot of volume on the stock market, we are talking about the stock market sinking because of a lack of interest in the market. We have seen gold volatile.

For those who have received updates in the past from us, they would have been out of the S&P 500 before this drop. They would have been in gold again at around $1530. What would you summarize right now if somebody asked you on the plane, what would you recommend right now? What would you say, Dave?

David: I would say the global economy is not supportive of being in the equity markets today. You need to be very cautious about your equity exposures, the select sectors which will make sense, but the global economy, the U.S. economy, and more broadly, the global economy, is simply not supportive of a growth thematic which is going to drive prices from the current price, to twice the current price, with you being the beneficial owner. You have far more downside than upside.

On the flip side of that, if you are looking at precious metals, you have quite the opposite. You have far less downside than upside. Then the question is, how would someone position themselves? We come back to that perspective triangle, and that apportionment between different mandates. Liquidity is a vital mandate, growth and income a vital mandate, insurance is a vital mandate, and there are constituent parts within those subsets within the portfolio that will either drive growth or drive losses.

It has to be constructed intelligently and this is something that we can help folks with, but it is something that you need to grasp hold of now – the need for insurance at a cheap price relative to other asset classes, the change that we were talking about in relative values, between equities and gold equities and silver, between gold and silver and houses, between real assets, measured against themselves.

Factor out, if you possibly can, the relationship of any of your real assets to the underlying currency, whether that is yen, which today is in freefall, the euro, which is somewhat stabilized, but still weak, and the dollar, which seems to be picking up, but which is fundamentally a disaster.

Kevin, if you can remove seeing your real assets priced in these fiat currencies and begin to weigh real asset values against real asset values, you will be in a position to grow wealth on an intergenerational basis in very dramatic ways, even over the next 5-10 years.